Top advisers to President Joe Biden are currently working on a proposal to create a sovereign wealth fund that may allow the U.S. to speculate in national security interests akin to technology, energy and demanding supply chain links, people acquainted with the trouble say.
The work of National Security Advisor Jake Sullivan and his deputy Daleep Singh behind the scenes reflects – at the least in spirit – a proposal by Republican presidential candidate Donald Trump, who called for a government investment fund to finance “major national projects” in a speech to the Economic Club of New York on Thursday.
Sullivan and Singh have been working on the project for months through weekly brainstorming sessions and have met with economic experts from the National Security Council to debate the dimensions, structure, financing, leadership and possible guardrails of a proposed fund.
Work is now so advanced that planning documents are circulating amongst White House staff and key agencies, said people acquainted with the matter, who asked to not be identified to debate internal deliberations. But whilst work has progressed, key details — notably the fund’s structure, its financing model and its investment strategy — remain unclear.
Still, Trump’s public support could give the initiative a bipartisan boost, and it could be relatively novel outside of nations with significant commodity exports and budget surpluses, akin to the oil-rich countries of the Middle East.
A key motive of the project is to counter U.S. adversaries’ access to key raw materials and latest technologies. The consultants are particularly taken with with the ability to tap into capital at the identical pace and scale as other countries. The China Investment Corporation, for instance, has made significant investments in natural resources, profiting from the country’s foreign exchange reserves.
Those involved in the trouble aim to formalize the proposal within the remaining months of Biden’s term. Aides consider such a fund could help bolster U.S. interests by providing equity, guarantees or bridge financing to illiquid but solvent corporations competing with Chinese firms.
Proponents of the concept consider the fund could possibly be used to support latest technologies which have high barriers to entry – including shipbuilding, latest geothermal and nuclear fusion projects, and quantum cryptography. Biden’s aides also consider the fund could possibly be used to create synthetic reserves of critical minerals by purchasing futures contracts. Singh, one in all the architects of the project, recently returned to the federal government after a stint at PGIM Fixed Income.
This approach shouldn’t be unlike some Asian countries’ aggressive investments in technology corporations, akin to Singapore’s state-owned Temasek Holding’s backing of Microsoft Corp. and NVIDIA Corp. But Temasek’s investment in now-bankrupt crypto firm FTX illustrates a number of the risks of such an endeavor.
Most other sovereign wealth funds – including those created in Kuwait, Norway and Abu Dhabi within the mid-Twentieth century – were funded with surplus oil revenues. Nevertheless, some US states, including Alaska, New Mexico and Texas, have successfully launched their very own sovereign wealth funds financed with energy and mineral resources. And other countries, akin to Canada and Australia, have independently managed sovereign wealth funds.
Congress work
Establishing such a fund would require an act of Congress, and the battle over a possible funding source is prone to prove contentious. The White House has not yet begun pitching the concept to lawmakers — however it plans to debate the proposal with each Capitol Hill and the private sector within the near future.
Last 12 months, a bipartisan group of senators led by Republican Bill Cassidy of Louisiana and independent Angus King of Maine, who caucuses with Democrats, proposed creating an investment fund whose profits would help bolster Social Security advantages.
The idea of a US sovereign wealth fund is at the least receiving support from outside. Hedge fund billionaire John Paulson said on Thursday that he supports the US organising such a fund, which might surpass the $1.7 trillion that Norway uses for investments.
“It would be great if America joined that party and had savings instead of debt,” Paulson said in an interview with Bloomberg Television. “Over time, that would be bigger than any of the existing funds.”
However, former Treasury Secretary Lawrence Summers, in his response to Trump’s proposal, called the concept “incomplete.”
“It’s one thing if you’re Norway or the Emirates – which have huge natural resources that are running out and you export them – to build up a large wealth fund. But we have a large trade deficit. We have a large budget deficit,” Summers said on Bloomberg Television. Wall Street Week with David Westin on Friday.
Summers said it was “hard to believe that committing large sums of money to unspecified investments, made in unspecified ways, where you don’t even know what they’re going to be called, is a particularly responsible proposal.”
Mixed support
Critics argue that the fund could possibly be misused for political projects of sitting presidents and will prove difficult to finance – especially because the country continues to run significant deficits that contribute to a national debt of over $35 trillion.
Jared Bernstein, chairman of the White House Council on Economic Advisory, told Bloomberg Television that he was “very cautious about getting involved in any kind of sovereign wealth fund.”
“This is definitely something I didn’t talk about in the meetings I attended,” he said
Conservative economist Douglas Holtz-Eakin questioned the necessity for a fund.
“What problem would that solve? In my opinion, none. It has no value, no matter who proposes it,” Holtz-Eakin said Friday. “It would only result in this process being isolated from political control and oversight, and that is the last thing we need.”
In a speech to business leaders on Thursday, Trump said he envisioned the fund as a way of solving the country’s ongoing debt problems and announced he would finance it through his plan to impose tariffs on all imports.
“We will be able to invest in state-of-the-art manufacturing centers, advanced defense capabilities, cutting-edge medical research, and save billions of dollars by preventing disease in the first place,” Trump said. “And many of the people in this room will help advise and recommend investments for this fund.”
